Goodluck Automobiles (P.) Ltd. v. Assistant Commissioner of Incometax

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The Tax Publishers2013 TaxPub(DT) 0175 (Guj-HC) : (2013) 051 (I) ITCL 0034 : (2013) 359 ITR 0306 : (2012) 254 CTR 0001 : (2012) 078 DTR 0104 INCOME TAX ACT, 1961 --Assessment--Reference to VO Not being in consonance with the provisions of law--Assessing officer made a reference to the VO for estimating valuation of the cost of construction of the building constructed by the assessee. Upon receipt of the valuation report, assessing officer noticed a difference between the cost of construction as shown by the assessee and that reflected in the valuation report submitted by the VO. He, therefore, after calling upon the assessee to explain the difference, made addition of the said amount under section 69 of the Act as undisclosed investment of the assessee. *Held:* Was not justified as at no stage of the assessment proceedings, the assessing officer appeared to have mentioned that the books of account were defective or that the cost of construction as shown in the books of account was not the true cost of construction. Except for the difference in the estimated cost determined by the VO and the actual cost as shown by the assessee, the assessing officer had not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building in question and that the books of account did not reflect the correct cost of construction. Under the circumstances, there was no occasion for the assessing officer to make a reference to the VO. More so, the reference made to the VO, not being in consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the VO pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act. A perusal of the assessment order reveals that the assessing officer has categorically recorded a finding to the effect that the accounts are duly audited and complete details are available. From the tenor of the order of the assessing officer, it is apparent that he has made the reference to the VO merely to seek expert advice regarding the cost of construction. There is nothing in the assessment order to suggest that the assessing officer had any doubt regarding the cost of construction or that he was not satisfied regarding the correctness or completeness of the books of account. Before making the reference to the VO for ascertaining the fair price of construction, the assessing officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown by the assessee in its books of account. Thus, prior to making the reference to the VO, the assessing officer has not ascertained as to what was the defect in the cost of construction disclosed by the assessee in its returns of income. Moreover, it is apparent that the only reason for making the addition under section 69 of the Act is that there is a difference in the cost of construction as determined by the VO and as shown by the assessee. At no stage of the assessment proceedings does the assessing officer appear to have mentioned that the books of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction. Thus, while making the reference to the VO, the assessing officer has not recorded any defect in the books of account nor has he rejected the same. Except for the difference in the estimated cost determined by the VO and the actual cost as shown by the assessee, the assessing officer has not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the assessing officer to make a reference to the VO. As held by the Supreme Court in the case of Sargam Cinema, unless the books of accounts are rejected, the assessing officer cannot make a reference to the VO. Moreso, the reference made to the VO, not being in consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the VO pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act. [Para 12] The Tribunal was not justified in holding that the reference made by the assessing officer to the VO for estimating the cost of construction was not invalid. The Tribunal was also not justified in holding that the addition made by the assessing officer under section 69 of the Act was correct. [Para 13] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0175 (Guj-HC) : (2013) 051 (I) ITCL 0034 : (2013) 359 ITR 0306 : (2012) 254 CTR 0001 : (2012) 078 DTR 0104

INCOME TAX ACT, 1961

--Assessment--Reference to VO Not being in consonance with the provisions of law--Assessing officer made a reference to the VO for estimating valuation of the cost of construction of the building constructed by the assessee. Upon receipt of the valuation report, assessing officer noticed a difference between the cost of construction as shown by the assessee and that reflected in the valuation report submitted by the VO. He, therefore, after calling upon the assessee to explain the difference, made addition of the said amount under section 69 of the Act as undisclosed investment of the assessee. Held: Was not justified as at no stage of the assessment proceedings, the assessing officer appeared to have mentioned that the books of account were defective or that the cost of construction as shown in the books of account was not the true cost of construction. Except for the difference in the estimated cost determined by the VO and the actual cost as shown by the assessee, the assessing officer had not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building in question and that the books of account did not reflect the correct cost of construction. Under the circumstances, there was no occasion for the assessing officer to make a reference to the VO. More so, the reference made to the VO, not being in consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the VO pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act.

A perusal of the assessment order reveals that the assessing officer has categorically recorded a finding to the effect that the accounts are duly audited and complete details are available. From the tenor of the order of the assessing officer, it is apparent that he has made the reference to the VO merely to seek expert advice regarding the cost of construction. There is nothing in the assessment order to suggest that the assessing officer had any doubt regarding the cost of construction or that he was not satisfied regarding the correctness or completeness of the books of account. Before making the reference to the VO for ascertaining the fair price of construction, the assessing officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown by the assessee in its books of account. Thus, prior to making the reference to the VO, the assessing officer has not ascertained as to what was the defect in the cost of construction disclosed by the assessee in its returns of income. Moreover, it is apparent that the only reason for making the addition under section 69 of the Act is that there is a difference in the cost of construction as determined by the VO and as shown by the assessee. At no stage of the assessment proceedings does the assessing officer appear to have mentioned that the books of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction. Thus, while making the reference to the VO, the assessing officer has not recorded any defect in the books of account nor has he rejected the same. Except for the difference in the estimated cost determined by the VO and the actual cost as shown by the assessee, the assessing officer has not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the assessing officer to make a reference to the VO. As held by the Supreme Court in the case of Sargam Cinema, unless the books of accounts are rejected, the assessing officer cannot make a reference to the VO. Moreso, the reference made to the VO, not being in consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the VO pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act. [Para 12] The Tribunal was not justified in holding that the reference made by the assessing officer to the VO for estimating the cost of construction was not invalid. The Tribunal was also not justified in holding that the addition made by the assessing officer under section 69 of the Act was correct. [Para 13]